Document of The World Bank Public Disclosure Authorized Report No: ICR0000984
IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-45690 TF-26661)
ON A
Public Disclosure Authorized LOAN
IN THE AMOUNT OF US$150 MILLION
TO THE
PEOPLE’S REPUBLIC OF CHINA
FOR A
HEBEI URBAN ENVIRONMENT PROJECT
Public Disclosure Authorized
December 23, 2008
Urban Development Sector Unit China Country Management Unit East Asia and Pacific Region
Public Disclosure Authorized CURRENCY EQUIVALENTS
(Exchange Rate Effective June 30, 2008)
Currency Unit = Yuan (Y) Y 1.00 = US$ 0.1459 US$ 1.00 = Y 6.8543
FISCAL YEAR
ABBREVIATIONS AND ACRONYMS
CAS Country Assistance Strategy MIS Management Information System PDO Project Development Objectives MTR Mid-Term Review MTAPC Mid-Term Adjustment Project Components RVP Regional Vice-Presidency IPCAP Industrial Pollution Control Action Plan KPI Key Performance Indicators TTL Task Team Leader CPS Country Partnership Strategy IT Information Technology GIS Geographic Information System HP Hebei Province HPG Hebei Provincial Government HUEP Hebei Urban Environment Project IA Implementation Agency TWSC Tangshan Water Supply Company HWSC Handan Water Supply Company SWWC Shijiazhuang Wastewater Company TWWC Tangshan Wastewater Company HWWC Handan Wastewater Company WTP Water Treatment Plant WWTP Wastewater Treatment Plan ICB International Competitive Bidding RAP Resettlement Action Plan EMP Environmental Management Plan
Vice President: James W. Adams Country Director: David R. Dollar Sector Manager: Ede Jorge Ijjasz-Vasquez Project Team Leader: Takuya Kamata ICR Team Leader: Takuya Kamata
CHINA Hebei Urban Environment Project
CONTENTS
Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph
1. Project Context, Development Objectives and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes...... 9 3. Assessment of Outcomes ...... 13 4. Assessment of Risk to Development Outcome...... 19 5. Assessment of Bank and Borrower Performance...... 19 6. Lessons Learned...... 21 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners...... 23 Annex 1. Project Costs and Financing ...... 24 Annex 2. Outputs by Component...... 25 Annex 3. Economic and Financial Analysis ...... 28 Annex 4. Bank Lending and Implementation Support/Supervision Processes...... 36 Annex 5. Beneficiary Survey Results ...... 38 Annex 6. Stakeholder Workshop Report and Results...... 39 Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR ...... 40 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ...... 50 Annex 9. List of Supporting Documents...... 51 MAP A. Basic Information HEBEI URBAN Country: China Project Name: ENVIRONMENT PROJECT Project ID: P045910 L/C/TF Number(s): IBRD-45690,TF-26661 ICR Date: 12/30/2008 ICR Type: Core ICR PEOPLES' REPUBLIC Lending Instrument: SIL Borrower: OF CHINA Original Total USD 150.0M Disbursed Amount: USD 149.0M Commitment: Environmental Category: B Implementing Agencies: Hebei Project Management Office Cofinanciers and Other External Partners:
B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 03/24/1999 Effectiveness: 01/31/2001 01/31/2001 Appraisal: 03/04/2000 Restructuring(s): 08/17/2007 Approval: 06/27/2000 Mid-term Review: 11/15/2004 Closing: 06/30/2007 06/30/2008
C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Satisfactory Borrower Performance: Highly Satisfactory
C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Highly Satisfactory Implementing Quality of Supervision: Satisfactory Highly Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Highly Satisfactory Performance: Performance:
i C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status:
D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Sewerage 66 66 Sub-national government administration 1 1 Water supply 33 33
Theme Code (Primary/Secondary) Access to urban services and housing Primary Primary Environmental policies and institutions Primary Primary Pollution management and environmental health Primary Primary Water resource management Primary Primary
E. Bank Staff Positions At ICR At Approval Vice President: James W. Adams Jemal-ud-din Kassum Country Director: David R. Dollar Yukon Huang Sector Manager: Ede Jorge Ijjasz-Vasquez Keshav Varma Project Team Leader: Takuya Kamata Wiebe Moes ICR Team Leader: Takuya Kamata ICR Primary Author: Claudio Purificato
F. Results Framework Analysis
Project Development Objectives (from Project Appraisal Document) To develop a safe environment and to sustain the long-term economic growth of urban areas in Hebei Province. The project supports Hebei Province in:
1)implementing a long-term urban environmental services improvement program to recover from environmental degradation of its water and land resources,
ii
2) providing an adequate supply of safe water to its growing urban population and economy, and
3) ensuring sustainability of delivery through institutional and financial reforms of the service utilities.
Revised Project Development Objectives (as approved by original approving authority)
(a) PDO Indicator(s)
Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Reduction of pollution load from urban sources. e,g, waste water treatment rates e.g. waste water treatment (other indicators Value rates (other indicators exist - see quantitative or exist--see attachment) attchment) Qualitative) - Handan 29%; Tangshan Handan60%; 65%; Shijiazhuang 16% Tangshan 75%; Shijianzhuang 50%. Date achieved 01/01/2001 06/30/2008 Comments (incl. % achievement) Expansion of suppy of safe water to meet demand from domestic and industrial Indicator 2 : sectors. e.g. Handan e.g. Handan service are service are and population coverage Value population (other indicators exist-- quantitative or coverage - service see attachment) Qualitative) area 79.31 km2 - -service area 75.99 km2 population -population 818.2 ('000) 980,000 Date achieved 01/01/2001 06/30/2008 Comments (incl. % achievement) Indicator 3 : Improvement of financial viability of municipal service providers. Value e.g. increase in e.g. increase in quantitative or wastewater (domestic) wastewater Qualitative) tariffs (other indicators (domestic) tariffs
iii exist--see attchment) (other indicators - Handan 0.22 exist - see - Tangshan 0.43 attachment) - - Shijiazhuang 0.3 Handan 0.45 - Tangshan0.9 - Shijiazhuang 0.8 Date achieved 01/01/2001 06/30/2008 Comments (incl. % achievement)
(b) Intermediate Outcome Indicator(s)
Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : e.g. improvement in accounting and MIS/ KPI system. e.g.Total operating revenue - Total operating income - Net income Value before income tax - Tariff Targets are not (quantitative collection rate No available. or Qualitative) baseline values were available. For complete list of suggested indicators - See Annex 1 Date achieved 05/10/2000 06/30/2008 Comments (incl. % achievement)
G. Ratings of Project Performance in ISRs
Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 10/31/2000 Satisfactory Satisfactory 0.00 2 11/03/2000 Satisfactory Satisfactory 0.00 3 06/26/2001 Satisfactory Satisfactory 7.48 4 12/27/2001 Satisfactory Satisfactory 7.94 5 02/07/2002 Satisfactory Satisfactory 7.94 6 02/22/2002 Satisfactory Satisfactory 7.94 7 11/25/2002 Satisfactory Satisfactory 9.97 8 03/17/2003 Satisfactory Satisfactory 14.19 9 04/11/2003 Satisfactory Satisfactory 14.19 10 10/23/2003 Satisfactory Satisfactory 18.71
iv 11 04/02/2004 Satisfactory Satisfactory 30.64 12 12/23/2004 Satisfactory Satisfactory 44.51 13 06/15/2005 Satisfactory Satisfactory 65.79 14 02/16/2006 Satisfactory Satisfactory 91.51 15 06/28/2007 Satisfactory Satisfactory 116.22 16 06/05/2008 Satisfactory Satisfactory 127.99
H. Restructuring (if any)
ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions Components were added within the same project sites and 08/17/2007 N S S 116.22 within the same PDO as a result of mid-term project review
I. Disbursement Profile
v 1. Project Context, Development Objectives and Design
1.1 Context at Appraisal
Sector Background. China had made remarkable progress in expanding its urban water supply and wastewater services since the nineties. Some progress had been achieved in increasing service coverage, optimize the use of resources and reduce the municipal pollution discharges into the environment. A large percentage of China’s river stretches had been classified as severely polluted. Coastal waters suffered from wide spread eutrophication, including large-scale, toxic red tide of algae. In spite of extensive efforts to improve water quality and ensure reliable water supplies, seasonal shortages and polluted water resources continued to pose problems. Financing investments, and ensuring investment efficiency, was a major challenge for the sector. Some water supply utilities, and most wastewater utilities, relied heavily on municipal government funding.
In a context of serious water pollution and water scarcity, limited coverage (particularly for wastewater treatment) and increasing costs, the achievement of full cost recovery and introduction of cost control measures had become a growing requirement for the sector. While several pricing reforms, to inspire tariff increases and introduce more scientific methods of charging for the service received, were enacted by central government agencies, these could have been successful in the long term only if institutional and organizational reforms for the sector providers were also implemented.
Hebei had faced three major issues with regard to the urban environment: (i) environmental degradation; (ii) infrastructure constraints; and (iii) financial weakness of municipal services providers. The quantity and quality of water supplied to households and industries as well as its impact on economic development, and the continuing environmental deterioration of the aquatic environment and subsequent impact of water pollution on public health had been major concerns for the Hebei Provincial Government (HPG). Pressure to enhance capacity for wastewater management and water supply had been increasing with sustained economic growth and migration to the cities. At the time of project preparation, the capacity for wastewater treatment was limited. Except for some industries which undertook their own treatment, facilities for domestic wastewater treatment were limited in Hebei. In Shijiazhuang, the capital city, only 16% of the wastewater was treated in a centralized facility. The predominant means of treatment was through the use of septic tanks, which were often not operated efficiently and correctly. The existing capacity of targeted areas of investments at the time of project appraisal is summarized in the table below.
Location Wastewater Drainage Water Supply Pipelines Treatment Systems Production (Km) Capacity (Km) Capacity (m3/day) (m3/day) SHIJIAZHUANG 160,000 69 - - TANGSHAN 336,000 228.2 400,000 516 HANDAN 100,000 200 144,500 359.8
1 As a response to the increased demand for water and environment cleanup the Hebei Provincial Government (HPG) has launched the plan for the expansion and improvement of municipal wastewater management and water supply systems as well as embarked on a series of reforms both aimed at improving cost recovery and improve efficiency of service delivery by the companies.
Rationale for Bank Assistance. The project was in line with the Country Assistance Strategy (CAS) at the time of project approval and supported two of the five CAS priorities: (i) safeguarding the environment; and (ii) reducing infrastructure bottlenecks. Specifically, it has expanded the capacity of urban environmental services and improved the strengthening of water quality monitoring capability. The project also supported the strategy to increasingly use tariffs to finance environment related public services.
1.2 Original Project Development Objectives (PDO) and Key Indicators
The Project Development Objectives (PDO) of the Hebei Urban Environment Project (HUEP) were to provide a safe environment and to sustain the long-term economic growth of urban areas in Hebei Province (HP). The project supported Hebei Province in implementing a long-term urban environmental services improvement program to recover from environmental degradation of its water and land resources, provide an adequate supply of safe water to its growing urban population and economy, and ensure sustainability of delivery through institutional and financial reforms of the service utilities. The changes and benefits that the operation was expected to achieve were monitored through key associated performance indicators aimed to measure: (i) reduction of pollution load from urban sources through selective high-impact wastewater collection and disposal improvements; (ii) expansion of supply capacity for safe water in urban areas to meet demand from domestic and industrial sectors; and (iii) strengthened financial viability and institutional autonomy of municipal service providers.
The key indicators identified at the time of project preparation for monitoring project outcomes and impacts are: (a) reduction of pollution load from urban sources; (b) expansion of supply of safe water to meet demand from domestic and industrial sectors; and (c) improvement of financial viability of municipal service providers.
1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification
Project Development Objectives (PDO) and key associated outcome targets have not been revised during implementation.
1.4 Main Beneficiaries,
The project was targeting the population of the core urban areas of the three project cities of Shijiazhuang, Tangshan and Handan. The potable water infrastructures were aimed to strengthen the reliability of water supplies to the three largest urban centers in Hebei and to mitigate the effects of over-abstraction from ground water sources. Wastewater
2 removal from the city centers and treatment components were aimed to improve the quality of available surface water resources as well as the environmental conditions in the cities. The total population in the above mentioned areas at the time of project approval was estimated at 2.9 million projected to some 5.0 million by the year 2010. The primary beneficiaries of the physical investments were identified in 950,000 people for the water supply component and 1.6 million for the wastewater collection and disposal component. Approximately 400,000 people were targeted to directly benefit from the completion of the Handan wastewater and water supply components; approximately 640,000 people to benefit from the completion of the Shijiazhuang wastewater component; and approximately 570,000 people to benefit from the completion of the Tangshan wastewater and water supply components. In addition to the above it was expected that industrial and commercial activities would have benefited directly from project activities.
1.5 Original Components
The project included the four major components summarized below:
Water Supply. This component supported the upgrading and expansion of water supply in Tangshan and Handan, as well as demand side management.
Tangshan
• Raw water intake pumping station, with capacity of 160,000 m3/day, at Douhe reservoir located 15 km north of the city; • Raw water transmission main of pre-stressed concrete with diameter DN 1400 mm and total length of 19 km; • Water treatment plant, with capacity of 150,000 m3/day; and • Distribution network strengthening with a total length of 9.5 km of pipes varying in diameter from DN 600-1200 mm.
Handan
• Raw water intake works, with a capacity of 120,000 m3/day, at Yuecheng reservoir located 60 km south of Handan city; • Gravity raw water transmission main of pre-stressed concrete pipe, with a diameter varying from DN 1200-1400 mm and total length of 56.6 km; • Phase II of Tiexi water treatment plant, with a capacity of 100,000 m3/day; and • Strengthening of distribution network, with a total length of 50.8 km with pipe diameters varying from DN 300-1000 mm.
Wastewater Management. The component supported Hebei Provincial Government in implementing its water quality strategy in the three project cities, through expansion of wastewater collection and treatment facilities. The specific investments for each of the targeted cities are detailed below:
3 Shijiazhuang
• Sewer interceptors for a total length of 27.9 km connecting the proposed wastewater treatment plant to the southwestern periphery of the city; • Conventional activated sludge sewage treatment plant with a capacity of 500,000 m3/day, including sludge digesters and energy recovery; and • Secondary sewer program, including link sewers, for a total length of 12.3 km.
Tangshan
• Sewer interceptors with diameters varying from DN 1000-1800 mm for a total length of 6.1 km connecting the proposed wastewater treatment plant to the southeastern periphery of the city; • Conventional activated sludge sewage treatment plant with a capacity of 120,000 m3/day, including sludge treatment and composting facilities; and • Secondary sewer program, including link sewers, with diameters varying from DN 300-800 mm for a total length of 13.5 km.
Handan
• Sewer interceptors with a diameter varying from DN 1000-1800 mm for a total length of 8.1 km connecting the proposed wastewater treatment plant to the northwestern periphery of the city; • Rehabilitation and expansion of the North Sewage Pumping Station with a capacity of 60,000 m /day; • Oxidation ditch sewage treatment plant with a capacity of 100,000 m3/day including sludge treatment facilities; • Secondary sewer program, including link sewers, with a diameter varying from DN 300-800 mm for a total length of 30.2 km; and • Expansion of sludge treatment for a capacity of 33,000 m3/day and optimization of plant operational capacity at existing East Wastewater Treatment Plant.
Environmental Pollution Control. The component was aimed to address the issue of substantial pollution from industry, particularly in the Hai and Fuyang river basins, through the implementation of a policy focused on Industrial Pollution Control Action Plan (IPCAP). The objective of implementing the IPCAP was to reduce the scale of pollution loads from industrial sectors and in turn maximize expected environmental benefits from municipal investments. The proposed Industrial Pollution Control Action Plan (IPCAP) consisted of an overall time-bound action plan for each city outlining preliminary actions for: (a) quantitative analysis of pollution loads from industry based on compliance with national standards at present rates of wastewater discharge; (b) highlighting remaining non-complying discharges for immediate term control/closure; (c) set up of a pollution load database for each receiving watercourse; (d) developing future water quality objectives for all watercourses; (e) determining pollution load reductions required for all watercourses to meet 2005 and 2010 water quality objectives; (f) stating priority receiving watercourses requiring load reductions to meet desired water quality
4 objectives; and (g) stating priority industry sectors and enterprises for control and load reduction requirements
Institutional Development, Strengthening and Training. This component provided a Technical Assistance (TA) to support and advice on appropriate institutional, managerial, financial and operational arrangements to be put in place to enhance operational effectiveness, efficiency of management and financial sustainability of the water supply and wastewater companies in the project. Specific investments for this component are detailed below:
Institutional/ Managerial Sub-component
This included: (a) development of a company strategy, business plans and management information systems (MIS); (b) establishing service standards and monitoring performance targets under a more autonomous arrangement; and (c) company reorganization and development of human resources planning and training programs.
Financial Strengthening
This includes: (a) operationalize computerized accounting and financial reporting systems; (b) developing a financial MIS system; (c) reviewing and revising current billing practices to optimize collection efficiency; and (d) developing training programs.
Operation Enhancement
This includes: (a) identification and implementation of cost savings initiatives; (b) preparation and implementation of sludge disposal plans; and (c) introduction of modem, cost effective, operations and maintenance equipment, including training.
Management and Geographic Information
This includes: (a) assess current methods and systems for collection and maintenance of spatial and non-spatial data; (b) develop action plans for implementation of improved information technologies such as MIS and GIS; (c) identify and implement linkages required at local, provincial and national level for data sourcing; and (d) implement training programs to support the introduction and maintenance of the above information systems.
1.6 Revised Components
No major revision of project components took place during implementation. However significant reallocation of funds occurred during the execution of the project (see next paragraph).
1.7 Other significant changes
5 During the Mid-Term Review (MTR) which was carried out in November 2004, the Bank task team identified that a significant amount of loan proceeds was remaining unallocated. Based on that assessment, it was recommended that the remaining loan proceeds, which had originally been “unallocated” in Schedule 1 of the Loan Agreement, as well as generated by loan savings, were utilized to carry out: i) critical additional rehabilitation and upgrading work on the same water supply and wastewater systems implemented under the original Components 1 and 2 of the Project, in Tangshan and Handan municipalities; and ii) additional studies and training to ensure sustainability of the organizational reforms, which was included under the original Component 3 of the Project. These components were referred to as “Mid-Term Adjustment Project Components (MTAPC)”.
A full set of preparatory activities including feasibility studies, final designs and complete review of safeguards and fiduciary aspects was required to incorporate the new components into the project. Also, the project restructuring required amendments to the Loan and Project Agreements. All the restructuring process was time consuming and was completed in year 2007.
The investments implemented under the MTAPC are showed in the table below which link original components to related additional works and upgrades.
The proposed amendments constituted a “second-order restructuring”, requiring RVP approval, as set forth in BP13.05 since the proposals did not involve any changes to project development objectives while the reallocation exceeded the five-percent threshold defined in BP 13.25.
COMPONENTS Original Design MTAPC Water Supply Tangshan • Raw water intake pumping station, • Upgrading water distribution with capacity of 160,000 m3/day, at network by replacing 31 km of Douhe reservoir located 15 km water pipes; north of the city; • Upgrading intake pumping station • Raw water transmission main of at old Beijiao Water Treatment pre-stressed concrete with diameter Plant and Groundwater Treatment DN 1400 mm and total length of 19 Plant, as well as upgrading of km; equipment in the Beijiao Water • Water treatment plant, with capacity Treatment Plant; of 150,000 m3/day; and • Distribution network strengthening with a total length of 9.5 km of pipes varying in diameter from DN 600-1200 mm. Handan • Raw water intake works, with a • Upgrading of water supply capacity of 120,000 m3/day, at distribution network to larger Yuecheng reservoir located 60 km ductile pipes; south of Handan city; • Upgrading of the equipment for • Gravity raw water transmission aging early-phase parts of the main of pre-stressed concrete pipe, water treatment plant; with a diameter varying from DN 1200-1400 mm and total length of
6 56.6 km; • Phase II of Tiexi water treatment plant, with a capacity of 100,000 m3/day; and • Strengthening of distribution network, with a total length of 50.8 km with pipe diameters varying from DN 300-1000 mm. Wastewater Management Shijiazhuang • Sewer interceptors for a total length of 27.9 km connecting the proposed wastewater treatment plant to the southwestern periphery of the city; • Conventional activated sludge sewage treatment plant with a capacity of 500,000 m3/day, including sludge digesters and energy recovery; and • Secondary sewer program, including link sewers, for a total length of 12.3 km. Tangshan • Sewer interceptors with diameters • Tangshan Wastewater: varying from DN 1000-1800 mm Construction of an effluent reuse for a total length of 6.1 km plant for the use of treated connecting the proposed wastewater wastewater as cooling water for treatment plant to the southeastern the nearby power plant and periphery of the city; associated pipelines. The same • Conventional activated sludge implementation agency of the sewage treatment plant with a original Component 2 – (ii), capacity of 120,000 m3/day, Tangshan Wastewater Company including sludge treatment and Co., Ltd, will be in charge of composting facilities; and implementation of this additional • Secondary sewer program, component. including link sewers, with diameters varying from DN 300- 800 mm for a total length of 13.5 km. Handan • Sewer interceptors with a diameter • Handan Wastewater: Upgrading varying from DN 1000-1800 mm and extension of sewage pipes for a total length of 8.1 km serving the old Eastern connecting the proposed wastewater Wastewater Treatment Plant and treatment plant to the northwestern upgrading of equipment at the periphery of the city; same plant. The same • Rehabilitation and expansion of the implementation agency of the North Sewage Pumping Station original Component 2 – (iii), with a capacity of 60,000 m /day; Handan Sewerage Treatment Co., • Oxidation ditch sewage treatment Ltd, will be in charge of plant with a capacity of 100,000 implementation of this additional m3/day including sludge treatment component. facilities; • Secondary sewer program, including link sewers, with a diameter varying from DN 300-800 mm for a total length of 30.2 km; and
7 • Expansion of sludge treatment for a capacity of 33,000 m3/day and optimization of plant operational capacity at existing East Wastewater Treatment Plant. Environmental Pollution Control Industrial • quantitative analysis of pollution Pollution Control loads from industry based on Action Plan compliance with national standards (IPCAP) at present rates of wastewater discharge; • highlighting remaining non- complying discharges for immediate term control/closure; • set up of a pollution load database for each receiving watercourse; • developing future water quality objectives for all watercourses; • determining pollution load reductions required for all watercourses to meet 2005 and 2010 water quality objectives; • stating priority receiving watercourses requiring load reductions to meet desired water quality objectives; and • stating priority industry sectors and enterprises for control and load reduction requirements Institutional Development, Strengthening and Training Institutional/ • development of company strategy, Managerial Sub- business plans and management component information systems (MIS); • establishment of service standards and monitoring performance targets under more autonomous arrangement; and • company reorganization and development of human resources planning and training programs; Financial • operationalize computerized Strengthening accounting and financial reporting systems; • developing financial MIS system; • reviewing and revising current billing practices to optimize collection efficiency; and • developing training programs; Operation • identification and implementation of • carrying out a study of sludge Enhancement cost savings initiatives; disposal at the Qiaodong • preparation and implementation of Wastewater Treatment Plant in sludge disposal plans; and Shijiazhuang; • introduction of modem, cost • carrying out a water supply and effective, operations and wastewater management
8 maintenance equipment, including study/training; training; Management and • assess current methods and systems • establishment of a geographical Geographic for collection and maintenance of information system (“GIS”) Information spatial and non-spatial data; system in Handan; • develop action plans for implementation of improved information technologies such as MIS and GIS; • identify and implement linkages required at local, provincial and national level for data sourcing; and • implement training programs to support the introduction and maintenance of the above information systems;
2. Key Factors Affecting Implementation and Outcomes
2.1 Project Preparation, Design and Quality at Entry
Bank sector work at the time of preparation highlighted that water and sanitation projects in China had been facing a number of challenges which included among others: (i) constraints in fulfilling financial viability of municipal services; (ii) difficulties in implementing agreed tariff increases in a timely manner due to the politically difficult decisions for local governments; (iii) poor performances in tracking and controlling industrial pollution.
The lesson learned from earlier operations were incorporated into the design of the project and included: (i) policy dialogue with the Hebei Government on tariff reforms and improvement of operational efficiency at early stage of project preparation. This was intended to encourage incentives for resource conservation and to create a more reliable income stream; (ii) as an integral part of the project design substantial tariff adjustments were implemented during the preparation stage and prior to negotiation. In addition to that Bank and municipal governments agreed upfront on a schedule for tariff adjustments during the implementation of the project; (iii) Industrial Pollution Control Action Plan (IPCAP) for each city outlining preliminary actions to reduce the scale of pollution loads from industrial sectors and in turn maximize expected environmental benefits from municipal investments.
The Government has demonstrated adequate commitment to the proposed project as evidenced by: (i) regular involvement by the high level Leading Group, headed by the Vice Governor, to support institutional reform and tariff increases; (ii) excellent performance by the provincial and municipal project management offices during the preparation of the proposed project; (iii) major upfront actions on institutional reform in the wastewater subsector and substantial tariff increases for both water supply and wastewater; (iv) investment of considerable provincial and municipal resources in the
9 preparation of comprehensive feasibility studies for an extended period; and (v) hiring of top class local design institutes for technical studies as well as safeguard policies.
The Bank brought considerable international experience in assisting the client in policy formulation and investment program design and especially in addressing institutional and financial reform within water supply and wastewater utilities. The Bank involvement has allowed the introduction of more cost-effective solutions and enhanced the construction quality control of the physical investments, accelerated institutional strengthening and training, and contributed to accelerate promotion of utility reforms.
A critical aspect of the project preparation is related to the design of the monitoring and evaluation system. A number of indicators were identified and selected. However they were not fully adequate to monitor progress towards Project Development Objectives (PDO) since no specific indicators were agreed to monitor the financial performance of the municipal service companies. Moreover, no baseline information was clearly set forward at the time of project appraisal and prior to starting implementation. Also, another aspect in which the project preparation failed is that no targets were discussed and provided in the approval documents.
2.2 Implementation
The project was implemented mostly as designed and largely achieved the development objectives, particularly with respect to institutional strengthening and provision of safe water supply. Water and wastewater companies substantially met performance indicators on operational aspects, thanks to the positive effects of corporate and organizational improvement works that were carried out since the early stage of implementation. With regard to financial performance, most of the companies met the cost recovery and debt service coverage covenants with the exception of Shijiazhuang Drainage Company which is the only one that lagged behind on this aspect despite the tariff increase approved by the Province. Some adjustments took place following the mid-term review and accordingly the project was completed on June 30, 2008, one year behind the originally scheduled closing date of June 30, 2007. This was required mainly to implement the new activities incorporated under the Mid-Term Adjustment Project Components (MTAPC) plan.
Carried out in November 2004, the mid-term review found the project substantially on track. However, as a result of the mid-term review, it was agreed to reallocate funds within the Loan to incorporate critical additional rehabilitation and training. Preparatory works for the MTAPC including feasibility studies, engineering designs, procurement processes, and safeguard and fiduciary reviews were carried out by the project implementation agencies in Hebei Province and the Bank task team. In addition to the above additional Bank financial reviews highlighted an erroneous presentation in the financial covenant in Schedule 3 of the Project Agreement. This required an amendment to the Project Agreement to incorporate MTAPC into the legal documents and to correct the financial covenant issue. The whole preparation and approval process to incorporate the new components into the project was time consuming and was completed in August 2007 with the clearance and approval provided by EAPVP.
10 The amendments included: (a) reallocation of loan proceeds of US$19.79 million (13 percent of the total Loan amount of US$150 million) to implement additional critical rehabilitation and upgrade works on the water supply and sewerage systems in the same Project municipalities; (b) an extension of the Closing Date by nine months to June 30, 2008; and (c) rectification of the double counting of the value of depreciation and debt service requirements in a financial covenant in the Project Agreement.
2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization
The project monitoring and evaluation system designed at the time of project preparation selected a number of indicators that were not fully adequate to monitor progress toward Project Development Objectives (PDO). No specific indicators were agreed to monitor the financial performance of the municipal service companies. No baseline information was made available at the time of project appraisal and prior to starting implementation. Also, no established targets were discussed and provided in the approval documents.
The development of the above mentioned M&E activities and the compilation of correlated baseline information lagged behind during the execution of the project due, for the most part, to a temporary lack of guidance that occurred at the time a change in the Bank Task Team composition took place. When the current and latest TTL took over the responsibility of the project in 2006, the set of Key Performance Indicators (KPIs) were revised and made operationally more relevant and practical. However, no targets were agreed between the Bank and the implementation agencies at the time KPIs were revised since the project was too close to its final stage.
The selection was based on the following criteria: (i) indicators should have been specific and relevant; (ii) indicators should have been simple and easy to measure; (iii) make the most of the monitoring indicators that the companies already reported to the relevant regulatory bodies. The new set of amended indicators was included in the Bank monitoring and reporting system.
The originally defined set of indicators are compared with the revised KPIs and showed in the table below.
KEY PERFORMANCE Originally Designed Revised INDICATORS Sector Indicators • Ambient environment conditions in Hebei improved • Environmental related health problems reduced • Urban environmental infrastructure supply meets demand Outcome Indicators • Reduction of pollution load from urban sources • Expansion of supply of safe water to meet demand from domestic and industrial
11 sectors • Improvement of financial viability of municipal service providers Output Indicators • Ratio of actual tariff to cost Quarterly Indicators recovery tariff is increased • Volume increase for: Operational wastewater collected, safe water supplied, number of For Water Supply Company small and medium (1) Volume of Water Sold industries adopting cleaner (2) Unaccounted for water ratio technology (3) Quality of water • Long-term water resource (i) turbidity strategy developed and (ii) residual chlorine number of staff trained in (iii) coliforms water quality monitoring (iv) total bacteria • Percentage of sewage collected and treated For Waste Water Company • Percentage nutrient removal (4) Volume of Water Treated • Supplies increased to meet (5) Quality of Treated Water demand; water quality (i) COD improved (ii) BOD (iii) SS • Reduction in pollution load (iv) NH3-N from key industries (v) TP • Improvements in
accounting and MIS, Financial numbers of management
and staff trained For Water Supply Company and Waste Water Company (6) Total operating revenue (7) Total operating income (8) Net income before income tax (9) Collection efficiency rate
Annual indicators
For Both Water Supply Company and Waste Water Company (10) Unit consumption of electricity (11) Unit consumption of chemicals
For Water Supply Company (12) Water supply volume per employee
For Waste Water Company (13) Waste water treated volume per employee (14) Volume of treated water reused (15) Volume of sludge (16)Volume of sludge disposed
12 other than landfill
2.4 Safeguard and Fiduciary Compliance
All aspects related to the Environmental Assessments, Fiduciary and Safeguards issues have been found satisfactory. The project received the environmental category B classification which entailed a partial environmental assessment. Environmental Management Plans (EMPs) and Resettlement Action Plans (RAPs) for the original components were implemented satisfactorily.
With regard to the works included under the additional MTAPC all EMPs were cleared by the Bank. It was determined that no Resettlement Action Plans (RAPs) were needed for the additional works since there was no resettlement associated with the proposed investments. All the civil works and equipment upgrade were located in existing sites, roads and city boundaries and no land acquisition was involved for the additional works.
All major procurement activities were completed satisfactorily and regular post-reviews confirmed compliance with Bank procurement guidelines. All the procurement methods were in accordance with the original procurement arrangements. Only one change was required to include Single Source Selection procurement method for consultants’ selection to allow the same supervising consultant to continue performing the supervision duties on the MTAPC.
Periodic supervision mission reviews of financial management (FM) rated financial management as satisfactory.
2.5 Post-completion Operation/Next Phase
All the utility companies other than SWWC already carried out basic performance monitoring and reported some of the indicators to the relevant regulatory bodies on a monthly basis. The project contributed to improve the KPIs management system by introducing a more functional set of performance indicators and by establishing monitoring routines which will allow future and more systematic evaluation of utility companies’ progress. The water supply and sanitation companies have been in operation for quite few years during project implementation. The Bank rated their performance satisfactory and therefore no issues related to transition are expected.
3. Assessment of Outcomes
3.1 Relevance of Objectives, Design and Implementation
The project, as designed and implemented, tackles some of the China’s development challenges as identified in the current Country Partnership Strategy (CPS) (2006), notably: (i) pricing water to reflect more accurately the scarcity value of water and the
13 environmental degradation linked to water use and water pollution; (ii) taking steps to minimize water pollution by processing urban wastewater for reuse.
Also, the project is consistent with the current Bank Country Assistance Strategy (CAS) (2003) and corporate goals to address the expansion of urban wastewater collection and treatment facilities while upgrading utilities management and performance, and improving efficiency of water supply.
3.2 Achievement of Project Development Objectives
The Project Development Objective (PDO) of providing safe environment and to sustain the long-term economic growth of urban areas in Hebei Province was substantially achieved. The accomplishments were measured by project outcome indicators, which included: (i) reduction of pollution load from urban sources; (ii) expansion of supply of safe water to meet the demand from domestic and industrial sector; and (iii) improvement of financial viability of municipal service providers.
Specifically, the project has contributed significantly to protecting the water resources and supplying adequate safe water in Hebei Province. The direct beneficiary population of the project is approximately 2.58 million people, 0.97 million more than the 1.61 million estimated in the PAD. The wastewater components in Handan, Shijiazhuang and Tangshan are fully operating and reduce, every year, the discharge of contaminants in receiving water bodies for a total of about 121,990 tons of COD; 54,100 tons of BOD; 38,700 tons of suspended solid (SS) and 10,610 tons of ammonia nitrogen (NH3-N). Additionally, the project has achieved even greater pollution control than originally planned through the adoption of a Wastewater Reclamation Plant in Tangshan constructed through the utilization of loan savings. Both water supply components in Handan and Tangshan have been put into operation and have been supplying safe drinking water. Also, both Handan and Tangshan Water Supply components constructed additional distribution networks through the utilization of loan savings, increasing beneficiary population above the estimates in the PAD. The outputs of Technical Assistance have been successfully strengthening financial viability and institutional autonomy of municipal service companies towards the goal of full cost recovery.
The financial performances of the five implementing agencies are summarized below. All the utility companies other than SWWC had complied with the financial covenants1 in 2007. For this compliance, TWWC and HWWC received government subsidies. HWSC and TWWC had planned to implement the tariff increase in 2008. However, due to the inflationary environment in China, it was delayed and will likely not be implemented until the second half of 2009. As a result, the two companies would not be able to comply with the debt service coverage covenant in 2008. HWWC and SWWC have to further improve the collection rate. SWWC, which could not achieve the collection rate of 60% for a long period, recently improved the collection rate substantially from 60% in 2005 to 85% in 2007. HWWC, which experienced a sudden dip in the collection rate to 67% in
1 A cost recovery ratio of at least 1.0 and a debt service coverage ratio of at least 1.3.
14 2007 after the tariff increase, is expected to recover it to 72% in 2008. ICR assessment is that HWWC and SWWC can achieve their targets with the strong support from the relevant municipal government. With these targets achieved, all the companies would be able to comply with the financial covenants in 2010 and onwards as the tariff increases will be implemented as planned.
Compliance Status of Financial Covenants
actual projected 2007 2008 2009 2010 2011 2012 Water Supply Company TWSC Cost Recovery Ratio 1.1 1.1 1.0 1.1 1.1 1.1 Debt Service Ratio 1.5 1.5 1.5 1.4 2.4 2.4
HWSC Cost Recovery Ratio 1.0 1.0 1.0 1.1 1.0 1.2 Debt Service Ratio 1.3 0.8 1.1 1.3 1.3 2.1
Waste Water Company TWWC Cost Recovery Ratio 1.1 1.0 1.0 1.1 1.0 1.1 Debt Service Ratio 1.4 1.0 1.2 1.4 1.3 1.6
HWWC Cost Recovery Ratio 1.5 1.1 1.2 1.2 1.4 1.3 Debt Service Ratio 2.3 1.3 1.4 1.4 1.9 1.9
SWWC Cost Recovery Ratio 0.9 1.0 1.0 1.3 1.2 1.2 Debt Service Ratio 0.8 1.0 1.0 1.7 1.7 1.7
The implementing agencies started to collect Key Performance Indicators (KPI) from the first quarter of 2007 in accordance with KPI revision carried out in December 2006 (see paragraph 2.3). Some results of key performance indicators for the fourth quarter of 2007 and fiscal year 20072 are reported below.
2 HWSC reported the 2006 figures by miscommunication. The annual indicators were not provided by SWWC.
15 Results of KPI for Water Supply Companies
TWSC HWSC Actual Target Actual Target
Quarterly Indicators (2007 4Q) (2006 4Q) Operational 1 Water Sales Volume (000 m3/d) 250 132 2 Unaccounted for Water Ratio % 22.2% 19.3% 3 Quality of Water (i) turbidity (NTU) 0.35 0.45 (ii) residual chlorine (mg/L) 0.4 0.54 (iii) coliform (0/mL) 0 0 (iv) total bacteria (CFU /mL) < 3 0.096
Financial1) 4 total operating revenue (RMB million) 34 80.5 5 total operating income (RMB million) 0.0 -28 6 net income before income tax (RMB million) 0.2 -33 7 tariff collection rate (%) 99.8% 92.5%
Annual Indicators (2007) (2006) 7 Unit consumption of electricity (kwh/1000m3) 371 266 8 unit consumption of chemicals (kg/1000m3) 15 3.5 9 water supply volume per employee (m3/d/person) 192 125
1) All HWSC’s figures are 2006 figures.
Targets for each indicator, as mentioned in other part of this report, were not available.
3.3 Efficiency
All the water and wastewater components are estimated to generate financial rates of return (FIRRs) above the average cost of capital of 4.0%. These rates of return result from the fact that the project costs for all the components have been effectively controlled. In order to realize these rates of return, however, all the water supply and wastewater companies need to increase the tariffs as planned. During implementation of the proposed tariff increases, HWWC and SWWC also need to improve the collection rate of tariff revenues as planned. The implementation of tariff increases depends on the central government’s continuing policy guidelines promoting full cost recovery and local government compliance with the guidelines. ICR assessment is that: (i) all the utility companies can achieve this goal with the strong support from the relevant municipal government; and (ii) HWWC and SWWC would require further support to improve the collection rate from the relevant government agencies such as the construction bureau, the water resource bureau, etc. The economic rates of return (EIRRs) were revaluated only for the water supply components. The EIRRs are estimated at 18.6% for TWSC and 12.3% for HWSC, which ensures the economic viability of the project.
16 FIRR EIRR ICR PAD ICR PAD
TWSC 12.6% 9.8% 18.6% 14.4%
HWSC 8.4% 8.8% 12.3% 12.9%
TWWC 9.8% - - -
HWWC 7.2% - - -
SWWC 7.6% - - -
3.4 Justification of Overall Outcome Rating Rating: Satisfactory
The PDOs remained relevant to current China objectives and fully consistent with the latest Country Partnership Strategy (CPS). In an operating urban environment that is changing rapidly, the project achieved the outcomes envisaged at appraisal. At the project closing the developments achieved through the implementation of the project components were likely sustainable. The project has been carried out efficiently and the implementing agencies are expected to continue to operate in a satisfactory manner as proved by the economic and financial analysis. Overall outcome is therefore considered satisfactory.
3.5 Overarching Themes, Other Outcomes and Impacts
(a) Poverty Impacts, Gender Aspects, and Social Development
The project doesn’t make explicit and direct reference to poverty reduction implications. However, the support provided through its implementation contributes substantially to promote economic growth in the three cities, increase development opportunities and decrease poverty. The water supply component improves quantity, reliability and quality of water supplied by mitigating the effects of over-abstraction from ground water sources. The wastewater component improves the sanitary conditions by treating and removing wastewater from the center of the cities. The extensive construction activities and support services carried out during implementation and subsequent operations contributed to create job opportunities.
(b) Institutional Change/ Strengthening
The project caused significant beneficial institutional changes. It fostered transition of utilities companies from being centrally planned governmental agencies to autonomous, market-driven operating companies. Several innovations were promoted and introduced in specific functional areas like institutional development, business planning, financial
17 management, financial projections and tariff development, Management Information Systems (MIS), Geographical Information Systems (GIS), Information Technology (IT), water operations, wastewater operations and sludge management; and human resource development.
The evaluation of the impacts in each functional area is summarized below for each of the companies targeted by the project. The table provides an overview of the trend/results in institutional strengthening. The notations used in the table indicate the following levels of achievement: